“Limiting it to condensates is a bit of a win-win for everybody,” an analyst said. “Condensate gives a bit to the producers without really impacting the refiner. Compromise, one might say.”

Keywords:

By LANANH NGUYEN

Bloomberg

A recent US ruling allowing limited exports of lightly
processed oil may permit the equivalent of 3.6% of US crude
to be sold on international markets this year, according to
Citigroup.

About 300,000 bpd of an ultra-light oil known as condensate
could be exported by the end of the year, Citigroup said. In
total, 750,000 bpd of condensate is pumped from US shale
plays, according to Wood Mackenzie.

Exports would give US producers access to niche markets in
Asia and Latin America, while having only a small impact on
the price domestic refiners pay for crude, according to Steve
Sawyer, an analyst at FGE, an energy consultancy.

Limiting it to condensates is a bit of a win-win for
everybody, Sawyer said. Condensate gives a bit to
the producers without really impacting the refiner.
Compromise, one might say.

The US Commerce Department opened the door to more oil
exports after Pioneer Natural Resources petitioned for
approval to ship condensate from the Eagle Ford shale in
Texas that has been stripped of gases to make it less
volatile, a minimal level of processing known as
stabilization. Condensate has been abundant in shale
formations during the drilling boom, leading to at glut on
the Gulf Coast.

This is definitely not a game-changing shift in policy which would open the
floodgates on exports, Greg Priddy, director of global
oil at New York-based researcher Eurasia Group, said in an
e-mailed note. Only a portion of US condensate
production undergoes this sort of initial processing, and the
volumes which will be freed up for export under these ruling
will be modest.

Asian Markets

Condensate exported from the US would probably appeal to
buyers in China, Japan and South Korea as a feedstock for gasoline and petrochemical production,
according to Ehsan Ul- Haq, senior market consultant at KBC
Energy Economics.

Theres certainly interest in Asia, Ul-Haq
said. Europe doesnt need more
condensate because it increases yields of gasoline, which the
region already produces in surplus, he said.

Buyers in Venezuela, Brazil or Mexico might also purchase US
condensates to blend with domestically produced heavy crudes
to yield more high-value gasoline and diesel, although they
may only need small volumes, said Sawyer.

The US has restricted most crude exports since 1975, in
response to the Arab oil embargo. Shipments to Canada are an
exception, and those averaged 246,000 bpd in March, the
highest level since April 1999.

Litmus Test

Theres been no change to our policy when it comes to crude oil
exports, White House spokesman Josh Earnest told
reporters at a briefing.

Any oil that has been processed through a distillation tower of the kind
Pioneer uses to stabilize its condensate is no longer defined
as crude, and therefore is eligible for export, said Jim
Hock, a US Commerce Department spokesman.

This decision over what was previously considered a
gray area will gauge the global markets
reaction to a potential expansion of US crude exports,
said David Wech, managing director at JBC Energy, a
researcher in Vienna.

The US pumped 8.45 million bpd of oil in the week to June 20,
according to US Energy Information Administration data. The
Eagle Ford shale produced 205,000 bpd of condensate in the
first quarter, according to data from the Railroad Commission
of Texas. Pioneer Natural Resources pumped about 29,000 bpd
of oil and natural gas liquids from the formation over the
same period, according to a presentation on the
companys website.

The Pioneer ruling will be a litmus test for the market
in terms of how wide definitions are stretched and the window
for exports is opened, said Miswin Mahesh, an analyst
at Barclays in London.

Have your say

All comments are subject to editorial review.
All fields are compulsory.